February 2012

The Home Building Amendment Act 2011 ? Second Phase of Reforms Comes Into Effect, including changes to insurance requirements & new home building contracts

On 1 February 2012, the second set of amendments to the Home Building Act 1989 implemented by the Home Building Amendment Act 2011 started.
The changes follow the first phase of reforms commenced in October 2011.  They affect new residential building work, new home warranty insurance policies and new home building contracts but do not apply to existing claims, whether finalised or not, nor to legal proceedings already underway or finalised.

Statutory Warranties

The limitation periods for statutory warranties are now aligned with those for home warranty insurance, which are 6 years for structural defects and 2 years for non-structural defects. The periods will be extended by 6 months if the beneficiary becomes aware of a defect during the last 6 months of these periods. Previously, the time limit was 7 years for both structural and non-structural defects.

Home Warranty Insurance

All residential building work worth more than $20,000, other than “multi-storey dwellings”,  must be covered by home warranty insurance (an increase from $12,000). The new threshold also applies to the sale of a dwelling by an owner-builder and to cooling off periods.

When making a home warranty insurance claim, homeowners are now required to pay only the first $250 of the claim, down from $500.

Also, the minimum level of cover for all home warranty insurance policies has increased from $300,000 to $340,000, regardless of the value of the work.
 

Small Jobs Contracts

 The threshold for written contracts in the prescribed form has been raised to $5,000 (previously $1,000).  A new category of simplified building contracts for ‘small jobs’, i.e. jobs worth between $1,001 and $5,000, has been introduced.

A small job contract must:

  • be in writing
  • contain the parties’ details, including names and builder’s contractor licence
  • describe the work (including any plans and specifications);
  • state the contract price; and
  • be dated and signed
     

‘Related’ Corporations
 

The definition of corporations ‘related’ to a builder or developer has been widened to reduce the categories of beneficiaries who are entitled to claim under home warranty insurance policies, thus reducing the scope for abuse of the home warranty insurance scheme. The former definition of a ‘related’ corporation was quite narrow.
 

Revised Consumer Building Guide


Builders need to be aware that the Consumer Building Guide (“the Guide”) has been revised to reflect the changes to the Home Building Act 1989.  The Guide (available on the Fair Trading website but no longer printed by Fair Trading) must be provided to consumers prior to entering into a contract for residential building work worth more than $5,000. The former version of the Guide dated before January 2012 is no longer accurate and ought not to be used.

Traders should also revise their contracts to ensure their compliance with the new requirements of the Home Building Act 1989.

For information about the first phase of amendments, go to Bartier Perry’s November 2011 publication “Home Building Amendment Act 2011 – Alert for Builders, Owners and Developers”.
 

This publication is intended as a source of information only. No reader should act on any matter without first obtaining professional advice.

Principal author Natalia Panchenko